Robin Hood may
have robbed from the rich and gave to the poor, but Oregon does just
the opposite.

Oregon effectively taxes its wealthiest
1 percent of families at a rate one-third lower than the poorest 20
percent of state families, according to a study this year by the Institute
on Taxation and Economic Policy (ITEP). The wealthiest families averaging
$672,400 of income pay 6.1 percent of their income in combined state
income, property and excise taxes. The poorest families averaging
$9,300 in income pay 9.4 percent of their income in state taxes.

Such unfairness appears ripe for reform
and tax reform is a major topic in the state as Oregon struggles to
fund schools and basic services with billions in red ink. But while
most agree on the need for reform, there's little agreement on what
exactly "reform" means. For some reform means more breaks for the
rich and yet higher taxes for the poor. For others it means taxing
the rich to help the poor. For some reform means more taxes. For others
it means less.

"Everybody wants tax reform, but that
means a hundred different things to different people," says Tim Hibbitts,
one of the state's leading pollsters. "I don't know how you stitch
together a majority coalition."

Stitching a majority vote to mend Oregon
won't be easy. But there's a lot of ideas on how to do it, and a growing
number of people say the key may be taking from the rich to give to
the poor.

Reverse
Robin HoodThe unfairness of Oregon's tax system is
made worse by the state's many questionable tax breaks for the wealthy
and businesses, according to studies by the Oregon Center for Public
Policy (OCPP), a progressive think tank, and Fund Oregon's Future
Today (FOFT), a coalition of 50 progressive groups pushing for tax
reform.

The wealthy cash in on a host of tax
breaks in Oregon including:

Wealthier Oregonians that itemize their
deductions get $300 million a year through a break that allows them
to deduct their federal income taxes from their state taxes. About
74 percent of Oregonians with incomes under $40,000 don't benefit
from itemized tax deductions. Among people with incomes over $100,000,
95 percent itemize.

Oregon spent $22 million in 2001 helping
wealthy homeowners with incomes more than $200,000 pay their mortgages
by allowing them to deduct their loan payments. About $21 million
a year in such deductions goes to owners of second homes.

The income tax kicker benefits mostly
the rich. In 2001 the richest fifth of Oregonians reaped two-thirds
of the kicker money.

Oregon gives $18 million a year in tax
breaks to households earning more than $100,000 to help cover medical
expenses.

State Enterprise Zone and Strategic Investment
programs give corporations about $80 million a year in property tax
breaks.

Oregon spends about $12 million a year
on a Pollution Control Tax Credit that pays industry for projects
that they are legally required to do anyway.

Oregon gives corporations about $35 million
a year in tax breaks to support their foreign operations.

The state taxes large corporations' income
at 6.6 percent while taxing small businesses and individuals at 9
percent.

Oregon business were recently given a
state break to accelerate depreciation of their purchases, a $52 million
a year windfall.

All these big business breaks have left
the state with the lowest business taxes in the West, according to
a study by the Association of Washington Business. Last year, more
than 80 percent of Oregon's corporations used enough income tax loopholes
and dodges to qualify for the minimum payment of $10, according to
the FOFT coalition.

Many of the business breaks are supposed
to create jobs, but there's little evidence of that. Ed Whitelaw,
a UO professor and one of the Northwest's leading economists, recently
told EW that study after study has shown that corporate incentives
don't do much to improve the economy. "We've know [that incentives
don't work] for decades, yet people keep getting suckered into it,"
Whitelaw says.

The unfairness is only getting worse.
During the last decade, the tax burden on Oregon's low income families
increased by 2 percentage points to 9.4 percent of income. The wealthiest
Oregonians saw a slight decrease in taxes, according to OCPP. In 1990,
businesses paid more than 40 percent of the cost of running state
schools. Now they pay less than 30 percent.

Poor
TaxesMany of the leading proposals for tax reform
in the state Legislature would only make the system more unfair.

House Bill 3500 has the backing of some
moderate Republicans and some Democrats. The bill would trade a 5
percent sales tax for a reduction in state income taxes.

OCPP found that even if the sales tax
exempts groceries and other necessities, the bill would result in
an average tax increase of $227 for the poorest 20 percent of Oregonians
and an average tax break of $21,000 for the richest 1 percent.

The problem is that sales taxes hit the
poor much harder because they tend to spend all their money while
the wealthy save most of their money. Income taxes hit the poor comparatively
less because they are based on a percentage of income. Washington
state has a sales tax but no income tax and has the most regressive
tax system in the nation, according to ITEP.

HB 3500 "is a double hit to tax fairness,"
says Tim Nesbitt, director of the Oregon AFL-CIO, a leading member
of the FOFT tax reform coalition.

Lynn Lundquist, director of the Oregon
Business Association, says his group will "probably" support some
sort of sales tax. The regressive impact of the tax on the poor is
a concern, he says, but could be partially offset with income tax
breaks targeted at lower incomes, he says. "Can you completely do
away with it? Probably not," he says.

Jeff Thompson, an economist with OCPP,
says even if the poor were protected with targeted income tax breaks,
the middle class would probably still see a big tax hit while the
rich get a tax cut.

Another problem with sales taxes is that
they aren't deductible on federal taxes like income taxes. With HB
3500, Oregon will in effect end up sending 15 percent of the new tax
revenue or $400 million to Washington, D.C., Nesbitt says.

The idea of the federal government in
effect taking a big chunk out of the proposed tax increase is troubling
for Lundquist. "It's the biggest single issue that we don't have an
answer to."

A sales tax proposal would also have
little chance in passing, says Hibbitts. "I've been down this road.
I've been polling in this state for almost 30 years," he says, pointing
out that sales tax proposals have failed in the state nine times with
support below 30 percent.

Nesbitt says most Oregonians will recognize
the unfairness of a sales tax with income tax cuts that benefit the
rich. "There's not a chance in hell of that passing."

"The odds of us being successful are
tough to say the least," admits Lundquist.

Robin
HoodIncreasing income taxes on the wealthy would
have many advantages, progressive reformers say. "You could keep the
fairness and get more revenue," Thompson says.

The rich would only have to actually
pay about 70 percent of the state income tax increases because the
federal government would cover the rest with federal income tax deductions.

Wealthy Oregonians could afford to pay
more. In Oregon, the wealthiest 1 percent doubled their incomes in
the 1990s while most other Oregonians saw stagnant wages. In the 1990s,
the state had the largest jump in income inequality in the nation,
according to OCPP. The situation is only getting worse. Almost half
of the recent federal tax cut went into the pockets of the wealthiest
5 percent of state residents.

To make the income tax more fair, Oregon
could reduce the percentages it charges the poor and increase the
percentage charged on the wealthy. Oregon's income tax rates are effectively
nearly flat right now. About 70 percent of taxpayers qualify for the
top 9 percent rate. That's far more regressive than most states. Oregon's
effective income tax rates (before federal deductions) are about three
times higher for the wealthiest 1 percent than the poorest 20 percent.
The national average for state income taxes is a nine times difference
between the rich and poor. California's steeply progressive income
tax hits the very rich 40 times harder than the poor.

Oregon's flat taxes mean that the poor
here pay some of the highest state income taxes in the nation. Oregon
families of four with incomes at 125 percent of poverty pay $730 in
income tax, the second highest such bill in the country, according
to ITEP.

To make income tax revenue more stable
during economic downturns, the state could create a rainy day fund
to take it through recessions, Thompson says.

But boosting income taxes on the rich
could meet sharp opposition from business groups. "I don't think that
will fly," says the OBA's Lundquist.

"Our income taxes are so high they certainly
have a negative effect on business," Lundquist says. Charging more
"may drive some of the executives from here to Washington," he says.

Thompson says studies show the argument
that high income taxes hurt the economy isn't true. Oregon had the
fastest growing economy in the nation in the 1990s despite its comparatively
high reliance on income taxes, he says. Most businesses value the
government services and quality of life that taxes bring and won't
go to all the trouble to move just to seek out lower taxes.

But Thompson acknowledges that opposition
to higher income taxes is widespread, even among Democrats. Lower
income taxes has been a "right-wing mantra" for years in Oregon, he
says. "A lot of Democrats have unfortunately fell under the sway of
that siren song."

Nesbitt says strong business opposition
could make higher income taxes on the wealthy hard to pass. Other
progressive reforms may be more viable, he says. "They would fight
them all, but I'm trying to figure out which ones they would fight
the strongest."

Breaks
On Tax BreaksAn alternative to raising income taxes would
be going after all the tax breaks for the wealthy and big business.

Currently about 45 cents of every tax
dollar is lost to tax breaks, according to FOFT. A law limiting such
breaks to 33 cents on the dollar would generate $1.7 billion in new
revenue, Nesbitt says. The law would require the Legislature to budget
expenditures for tax breaks for businesses and the wealthy just as
it budgets expenditures for government services, he says. "We have
polling that shows people like that idea."

Lawmakers need to consider that each
dollar in tax breaks steals a dollar from needed state services, according
to FOFT. Cutting a million dollars in tax breaks would buy one day
of school for 51,000 students, in-home care for 77 seniors for two
years or two years of medical insurance for 129 Oregonians.

State spending on social services may
also be a better creator of jobs than tax breaks by bringing into
the state economy millions of dollars in federal matching funds, according
to OCPP.

A variety of other reform ideas are floating
around, including:

Making the 6.6 percent corporate income
tax rate match the 9 percent personal and small business rate would
bring in $300 million, according to Nesbitt.

A statewide commercial and industrial
property tax for schools ($3 per $1,000), would raise $645 million
in the next biennium, according to FOFT.

As part of a reform package, the tax
burden on the poor could be lessened by a homestead exemption or other
relief directed at low-income property tax payers, according to OCPP.

Expanding Oregon's Earned Income Tax
Credit and making it refundable would also provide relief for the
poor. Oregon's credit is set at only 5 percent of the federal credit
while Vermont gives the poor up to 32 percent of the federal credit,
according to ITEP.

Means testing income tax deductions
for medical care, home mortgage and tax expenses and other deductions
by making them unavailable for wealthy taxpayers would save the state
millions while protecting low-income tax payers, according to FOFT.

Some legislators have proposed a value
added or other internal business sales tax similar to those in Europe.
Such taxes would likely be passed on directly to low-income consumers
and share the same unfairness as a sales tax, according to OCPP.

Eugene Mayor Jim Torrey has proposed
the state allow a local option for school districts to increase property
taxes to fund their schools. Property taxes are more progressive than
sales taxes, but not as progressive as income taxes, according to
ITEP.

Repealing the state income tax kicker
would bring in more revenue by increasing taxes mostly on the wealthy.

The Oregon Business Association has proposed
an across-the-board 23 percent reduction in itemized deductions and
personal income tax exemptions to generate $620 million. OCPP says
the reduction should apply only to higher income tax payers. OBA has
also proposed increasing the corporate minimum tax to bring in $50
million and capping the state deduction for federal income taxes to
bring in another $100 million.

LeaderlessReformers have little hope that the state
Legislature will do much to reform taxes and bail the state out of
its $3 billion hole. "Their [Republican] caucus is held hostage by
a handful of right-wing ideologues," says Joy Marshall, director of
Stand for Children, a member of the revenue coalition.

Nor do reformers see much hope in Robin
Hood-like leadership from Gov. Ted Kulongoski. "He doesn't want to
go to the public with a major tax reform proposal," says the governor's
spokesperson Marian Hammond.

Hammond says Kulongoski may propose a
reform in a couple years but believes that the public needs time to
discuss and understand the revenue and tax problems the state has.
Rushing to voters "is not going to succeed," she says.

Hammond says the governor hasn't yet
decided even how to begin discussing reforms with voters. "That's
something we will be looking at in years to come."

The lack of leadership from the governor
has caused frustration among coalition members. "Many people would
like to see the governor take a stronger stand," Marshall says.

Kulongoski may be shying away from a
vote on tax increases during the statewide races in 2004. He had a
tough fight to win election last year with Measure 28 looming on the
ballot.

But Hibbitts says with the down economy,
the governor's race would have been close even without Measure 28.
Kulongoski shouldn't worry about a tax ballot hurting Democrats in
2004, he says. "It probably wouldn't make much of a difference."

Reformers say the time to act is now.
"Oregon can't afford not to act," says FOFT coalition director Chip
Terhune. "We've become this national poster child for states in fiscal
difficulty."

Budget cuts threaten to cut medical coverage
for 150,000 Oregonians and close schools up to 30 days early. "Tremendous
damage is being done," Terhune says.

Lundquist of OBA says business leaders
also have a sense of urgency. "We cannot have a healthy business environment
if we let the state fall below certain minimum standards," he says.
Already it's becoming hard for businesses to recruit employees to
a state with a national reputation for schools closing to save money,
he says.

Nesbitt says now is not the time for
yet more tax reform blue-ribbon commissions. "It's a time for solutions."

With so much publicity recently about
Oregon's failure to fund schools, the time is ripe right now for reform,
Nesbitt says. It will be harder to restore cut programs later than
save them now, he says. With school out for summer, the public pressure
for reform has let up, he says. "We may already have lost it for the
time being."

Taking
InitiativeWith action from the governor and legislature
unlikely, FOFT coalition members say they're preparing to gather signatures
to put a progressive tax reform measure on the ballot in November
2004.

Coalition members are now debating among
themselves and trying to figure out what exactly to put on the ballot.
Members want something that will be fair, politically viable and provide
additional stable revenue, Terhune says. "It is going to take a lot
of work to boil it down to either a single initiative or series of
initiatives."

Given the urgency of the school funding
situation, there's some debate on whether it's more important for
the measure to provide more revenue and be politically viable or be
fair to the poor, Marshall says.

David A. Leslie, director of Ecumenical
Ministries of Oregon, says the most important criteria should be fairness.
"It would be better to try and keep the principle focused before you
jump to any revenue is good revenue."

"The benchmark has to be does this make
the tax system more fair to working families. Without that I don't
think it has a chance" of passing, Nesbitt says. The AFL-CIO director
says the group should put one easy to understand measure on the ballot.
Two measures could split a potential majority and both fail, he says.

Moral
MajorityWhatever reformers put on the ballot, it
won't be easy to pass.

"I don't think it's a problem of finding
the right question," Hibbitts says. "Nothing would pass."

A tax increase will be even more difficult
given recent votes to fund tax increases in Eugene and Multnomah County,
Hibbitts says. Voters who've already passed a local measure for schools
may say, "We gave at the office."

"It's way too early to know what's going
to pass in November 2004," Marshall says. She says this tax reform
effort will be more broad based and well-organized than the failed
Measure 28 campaign and other past efforts at tax reform.

Oregon passed an income tax increase
in the deeper 1980s recession to fund schools, Marshall says. "We
could do it now if we had the political will."

If Oregon is able to reform the higher
burden of it's taxes on the poor, it would be a leader among states
nationwide. Oregon state taxes are actually less regressive than most
states, mostly because Oregon lacks a sales tax, according to ITEP.

State taxes are so regressive because
of a variety of reasons, according to Bob McIntyre, director of ITEP.
States historically left income taxes to the federal government, were
ignorant of the highly regressive nature of sales taxes, and were
more vulnerable to lobbying by the better off against reform. "Changing
the tax system in a big way is hard to do," McIntyre says.

Another difficulty in taxing the rich
and giving to the poor is that "class warfare politics hasn't been
terribly successful in the United States," Hibbitts says. "Many people
believe that one of these days they're going to be in the upper class,"
Hibbitts says. Middle class voters also often have different interests
and don't ally with lower income people, he says.

But McIntyre says, "raising taxes on
the rich always polls well." The challenge, he says, is educating
voters that the poor get stuck with the bills the rich don't pay.
"When confronted with the tradeoffs, people tend to move towards more
progressive taxes."

Nesbitt says the appeal of fairer taxes
will help pass a ballot measure. "The key to solving the budget problem
is to come up with a more fair tax system that raises revenue," he
says. "Fair taxes for good schools and good jobs," should be the motto,
he says.

"Possibly that might have a chance,"
says Hibbitts of such a Robin Hood call for fairness and justice.

Leslie of Ecumenical Ministries says
fairer taxes have a universal moral appeal. "In a fair and just society,
the rich should pay more," he says.

In anti-tax Alabama, conservative Republican
governor Bob Riley is citing the Bible in his campaign to reform the
"immoral" taxes in his state by taxing the rich more and the poor
less.